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September 10, 2012

Do CFPs Really Make More Money Than Non-CFPs?

In creating our new salary tool that went live on my website last week, we crunched a lot of numbers from my practice database to determine the factors that make some employees more valuable than others to employers. Some of them were the usual suspects such as training and experience, but we also found some factors that we didn’t expect. One of the things that surprised me came from comparing the salaries for CFPs vs. non-CFPs.

In our recruiting work, we don’t specifically target hiring candidates with CFPs, but we do give them preferential treatment. I kind of think of them the way sororities think about legacy pledges (girls whose mothers or grandmothers had been sisters); they don’t necessarily get in, but they automatically get an interview. Then we evaluate each applicant by looking at all their qualifications, and hire whoever is the best overall fit.

Consequently, I didn’t think that having a CFP had much effect on employee salaries. In fact, more often than you might think, not having a CFP actually can make a young advisor more attractive. For example, to a firm that’s not quite ready for a fully qualified advisor, someone who’s working on a CFP can buy time for the firm to get ready for them. What we found when we isolated the base salaries of CFP employees and those without a CFP was a surprisingly consistent difference: the annual salaries for employees with a CFP, regardless of whether they were lead advisors or right out of college or anywhere in between, was right around $5,000 higher.

While this finding will undoubtedly make the folks at the CFP Board happy—as well as CFPs everywhere—I have to admit that it puzzled us. It led to some considerable thinking about why this would be the case, particularly when we know for a fact that the employers in our database do not consciously pay CFPs more.

Here’s the best explanation we can come up with: In our experience, many young advisors who start with a new firm have already passed all or most of their CFP coursework, and they are only lacking the two-year working experience requirement. After they’ve been with the firm for those two years, and finally get their CFP designation, they virtually always expect to see an increase in their pay.

But from the firm’s perspective, they aren’t really any more valuable the day after they become CFPs than they were the day before: when their job changes they probably will be, but initially, they have yet to make an impact on the bottom line. Still, they do expect a raise, and most employers recognize that. So to keep them happy, but not undermine firm economics, they come up with a figure that’s meaningful to a young advisor, and still a portion of the bump they’ll get as an experienced advisor—say, $5,000 or so. It’s a figure that works for the firm, and works for the new CFP.

I suspect that just this kind of mental calculation is going on in the minds of owner/advisors all over the industry. Then, because those CFPs have that $5k built into their salaries, when they change jobs, or even get a promotion at their same firm, their raise will just be in addition to the higher salary. That way, the $5,000 difference between CFPs and non-CFPs gets perpetuated throughout their entire careers. That’s my best guess for the CFP pay differential we’ve seen in industry data: If you have a better explanation, I’d love to hear it.

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